Software major Wipro Limited has decided to pause variable payouts for the April-June quarter for mid and senior-level employees amid significant pressure on margins, people familiar with the development have told Moneycontrol.
Variable pay is not being given to those in Band C (mid-manager level) and above and incentives for those in sales roles have also been impacted, sources said.
Wipro's move to hold variable pay and defend margins comes amid fears of a possible recession in the US, the biggest technology market for Wipro and other Indian IT companies such as TCS and Infosys.
For employees in Band A and B (freshers and associates), the company is paying out 70 percent of the target variable pay if they meet the billability threshold along with the salary for August to be paid at the end of the month.
Wipro gives out variable pay every quarter. For employees in Bands A, B, and Rainbow (trainees), the company gives the variable pay on the basis of the employee’s billable days for the quarter. For Band C and above, variable pay is linked to the company’s financial parameters.
Variable pay, a part of an employee’s cost to the company, is linked to either the employee’s performance or that of the company. While variable pay ranges from 10-15 percent for junior level employees, it can be up to 20-30 percent of the compensation for mid to senior level employees.
Wipro communicated the changes to employees in an internal note sent a few days ago. Moneycontrol has viewed an excerpt of the mail.
The email to employees said there has been continued pressure on operating margins, and attributed it to "inefficiency in our talent supply chain, project margins, and our investments in talent, technology, and solutions during the quarter, which will continue as these are directed toward long-term value building."
Wipro told employees the company was measured on three financial metrics for variable pay—revenue, order booking, and margins, and is not paying out the variable pay due to the hit it took on margins. It told employees that as performance improves, the gains will be passed on to them.
For the first quarter of FY23, Wipro’s operating margin was down to a low of 15 percent, down 2 percent sequentially and from 18.8 percent in the year-ago period.
While announcing the company’s results in July, CFO Jatin Dalal said he believed the company’s margins had bottomed out.
Wipro is scheduled to roll out its yearly salary hike in September, the first increase since September 2021.
The company earlier said promotions would be rolled out every quarter up to the mid-management level starting July.
Dalal said in Q2, any operational efficiency gains the company makes would be invested back into promotions and salary increases, and the pressure on margins is likely to continue.
The company’s attrition rate in Q1FY23 was 23.3 percent, a shade better than 23.8 percent in the previous quarter. Attrition may increase with variable pay not being given.
During the call with analysts, Dalal had said the company’s levers to improve margins were primarily pyramid and fresher improvement. He termed it to be the only lever to reduce cost pressure that the company had seen in the last 18 months, amid soaring attrition, rising travel costs and return to work.
Wipro did not comment on Moneycontrol's query on the quantum of variable pay in the June quarter. "There is no change to our earlier statement on salary increase, and hikes for our employees will be effective from September 1, 2022. We have also completed the first cycle of quarterly progressions effective July 1, 2022. Our attrition has continued to be moderate and we see a similar trend going forward," Wipro said in a statement.
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